from the letting-innovation-fly-away dept

Drones are leaving the U.S. for greener pastures, according to several media outlets (e.g., WSJ and Bloomberg). In response to slow-moving U.S. domestic policy on commercial drone use, innovators are moving abroad, to jurisdictions where regulations have been updated to delineate when drones may be used in the commercial context. (Keep in mind, we are not talking about fixed wing Predator drones with Hellfire missiles, but aircraft that are already available commercially with much of the same technology already incorporated into our mobile phones.) Besides smaller companies actually moving abroad to places where they can sell their wares, even the likes of Google and Amazon have moved their drone testing to Australia and India, respectively.

Making matters worse, export control policies are poorly targeted, and prevent some drones made with widely available technology built in the United States from being sold overseas. In fact, according to the Wall Street Journal, 3D Robotics — a San Diego-based company that specializes in drones with video capability — was only allowed to resume selling some of its products in a number of countries because the drones were manufactured in Mexico:

Export rules prompted 3D Robotics to temporarily halt shipments to 44 countries this spring. It has since secured a new classification from the U.S. Commerce Department, in part because it manufactures its drones in Mexico, allowing it to resume foreign sales.

And for those inclined to view this as a minor development in a niche market, at least one study predicts that allowing commercial drone use in the United States could create 100,000 new jobs and $82 billion in economic impact over the course of the next decade.

A lot of smart people have already said a lot of smart things about the drone situation, so I won't delve too deeply into the nuances of streamlining commercial drone policy making. Clearly, there are good reasons why commercial drones can't take to the sky without some rules, but it is imperative that regulators move efficiently to establish a framework where, for example, a real estate agent or a surveyor can survey a property with a drone (in the same way it is currently legal for a non-commercial user to fly an off-the-shelf drone in her backyard). That is not happening now. According to the Department of Transportation's own Inspector General, the FAA is likely to miss its Congressionally mandated deadline in coming up with rules that allow for the expansion of commercial drone use.

There's a general point here worth expanding on: even if a country does everything right, creating a fertile environment for research, investment, and innovation (aka the hard stuff), innovation will nevertheless move overseas if outdated regulations impede the lawful sale or use of a product or service. It does not matter if the United States has the brightest minds, best expertise and easiest access to venture capital; if you can't sell, test or export drones here, then we will see those jobs and that talent go overseas to more fertile ground. In fact, this is already happening. And even if the FAA eventually comes up with a workable set of regulations that allow commercial drone activity, in fast moving industries — where first mover advantage is enormous — bureaucratic delays can be terminal.

Take Japan in the 1990s. Japan was a high-tech giant. In the early 1990s, both the U.S. and Japan had companies interested in innovating in online search engines. However, Japan's highly restrictive set of copyright laws meant that in order to index a website you had to get the website owner's permission first. When there are a couple hundred or a couple thousand websites, this is feasible. But clearly, this does not scale. Fortunately for U.S. innovators, the U.S. had copyright "fair use" enshrined into law, which allowed transformative uses of copyrighted content. This paved the way for U.S. search engine entrepreneurs, while the Japanese search sector never got off the ground. Even though Japan eventually updated its copyright law to make search engines legal (in 2007!), it was too late. As of today, U.S. search providers (Yahoo Japan and Google) have well over 90% of the Japanese search market.

The "crypto wars" of the 1990s are also a place to look for a parallel to the drone fight. Until 1992, the U.S. government imposed very strict export controls on cryptography. Although the export of strong encryption technology was viewed by many in the law enforcement and national security communities as detrimental to their missions, the rise of electronic commerce greatly increased the need for robust encryption in commercial products and Internet services. What followed was a long drawn out battle in which encryption proponents focused on several key arguments, including the logistical problems with trying to prevent the export of programming concepts, the widespread availability of cryptography internationally and free speech concerns. Another angle, which tied in with the ease of moving cryptographical research overseas, was that innovation in the U.S. would be harmed as much software engineering would be forced to move overseas in order to get around the onerous U.S. restrictions — restrictions that would have little actual effect on the worldwide availability of cryptography. Jon Peha, a professor at Carnegie Mellon who would later go on to be the Assistant Director of the White House's Office of Science and Technology policy, outlined some of the competitiveness concerns in a paper he wrote on encryption policy in 1998:

Industry critics argued that the restrictions accomplished little, since 128 bit encryption without key escrow is already readily available outside the US. An April 1998 report from the Economic Strategy Institute concluded that the policies imposed at that time (i.e. the 1996 interim policy) would cost the US economy between 35 and 96 billion dollars between 1998 and 2002. Some US companies have overcome these limitations by purchasing foreign products or shifting development activities overseas. For example, in March 1998, Network Associates announced that it would begin contracting all encryption development to a Swiss company.

By 2000, U.S. restrictions were sufficiently relaxed and the sale of software with encryption technology in it was made significantly easier. However, in certain situations export controls still apply, and the process for complying with them is still relatively byzantine. (And, with the recent NSA scandal and the fallout, we might be heading towards the Crypto Wars II.) To this day, there is still significant discussion on how the remaining export controls affect national competitiveness. (See European Commission Document on Export Controls, page 7.)

Churning out smart engineers and cultivating venture capital is not enough to succeed in a competitive globalized world. Policy bandwidth needs to be devoted to clearing unnecessary hurdles to commercializing and exporting the fruits of that innovation. Although Europe's "innovation policy" is lagging the U.S., countries like Germany are ascending to the lead in drone innovation because people can actually use drones commercially and export them to other countries. If a company cannot achieve the sales base necessary to scale their business, then they cannot continue to innovate.

Going forward, we should not just think of the other domestic policy fights in a vacuum. Take Tesla, for example. They are succeeding in producing commercially attractive electric vehicles where so many other companies have failed: a public policy and economic triumph that has been nearly universally lauded. Yet, they face sales bans or restrictions in over half of the states in the U.S based on a set of outdated and widely criticized auto dealer regulations. As the company continues to scale, and as foreign markets grow and more consumers worldwide fall into the crosshairs of Tesla's salespeople, an unnecessarily restrained domestic market will only force the company to locate more infrastructure and talent overseas than they otherwise would in the first place.

In the Tesla and drone cases, we got the hard stuff right. The United States fostered an innovative and dynamic economy that unleashed a wave on entrepreneurship and innovation. Now, much like the situation in immigration policy where we are pushing some of our best and brightest minds overseas, slow moving regulators and policymakers are forcing some of our nation's most dynamic companies overseas as well.

from the this-american-life-indeed dept

The idea that there's so-called "regulatory capture" of the Federal Reserve by the very Wall Street bankers they're supposed to regulate isn't one that's particularly surprising to anyone. It's been obvious for quite some time, but everyone in power has generally looked the other way about it. ProPublica and This American Life teamed up this week to reveal the the secret recordings of Carmen Segarra, a bank examiner of the Fed, who was supposed to be watching over Goldman Sachs. When she realized what was truly going on (basically, her bosses keep suggesting she tone down her criticism and concerns of Goldman), she bought a hidden recorder and started recording. The resulting story is astounding and incredibly revealing -- even if you already assumed much of it was true. Michael Lewis -- who's been reporting on Wall Street for decades -- describes the recordings as the "Ray Rice video for the financial sector", which may be a slight exaggeration, but the story is still quite telling.

The report starts off by detailing how the Fed conducted a (for internal use only) study on how it totally missed the financial meltdown of 2008. And the answer won't surprise you, even if those close to the system claim they were surprised:

The most daunting obstacle the New York Fed faced in overseeing the nation's biggest financial institutions was its own culture. The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did.

From there, the story moves on to Segarra, who had been hired to be a senior examiner watching over Goldman Sachs. She actually tried to do her job, and for that was fired after just seven months on the job. She had discovered serious conflict of interest problems on certain deals, and then (on top of that) discovered that Goldman Sachs had no official "conflict of interest policy" that conformed with what was required by the Fed. When she wrote up a report on this, her boss insisted that she take out the claim that there was no policy, despite it being true. She was soon fired -- and then sued the Fed (and lost).

However, this desire to whitewash embarrassment seems endemic at the Fed. It happened to the guy who wrote that report detailing the Fed's cultural problems:

One New York Fed employee, a supervisor, described his experience in terms of "regulatory capture," the phrase commonly used to describe a situation where banks co-opt regulators. Beim included the remark in a footnote. "Within three weeks on the job, I saw the capture set in," the manager stated.

Confronted with the quotation, senior officers at the Fed asked the professor to remove it from the report, according to Beim. "They didn't give an argument," Beim said in an interview. "They were embarrassed." He refused to change it.

The report goes on to detail how quickly the Fed seemed to take orders from Goldman Sachs. There was a situation in which a Fed examiner, Michael Silva, expressed concerns about a probably-legal, but still ethically-questionable, deal that Goldman was involved in -- effectively moving around some shares in a Spanish bank to make the bank look fiscally more sound than it really was. But, expressing concern about the deal apparently wasn't allowed:

Shortly after the Santander transaction closed, Segarra notified her own risk-specialist bosses that Silva was concerned. They told her to look into the deal. She met with Silva to tell him the news, but he had some of his own. The general counsel of the New York Fed had "reined me in," he told Segarra. Silva did not refer by name to Tom Baxter, the New York Fed's general counsel, but said: "I was all fired up, and he doesn't want me getting the Fed to assert powers it doesn't have."

This conversation occurred the day before the New York Fed team met with Goldman officials to learn about the inner workings of the deal.

In the audio version on This American Life, you can hear the incredible sequence in which Silva "fires up" his team to go confront Goldman about a specific problem with the deal (the other bank had required to get the Fed to sign off and say there were "no objections" and Goldman hadn't done so). However, then there's the recording of the meeting that happens right after Silva talks about going in and asking this important question -- and Silva doesn't get around to asking it until an hour into the meeting, and does so incredibly meekly, basically backing off the question before he's even finished answering it, handing Goldman an out.

There's also audio of other Fed employees talking about how they should almost apologize to Goldman for all their questions, out of fear that Goldman (1) will think they're being "critical" of the bank and (2) won't share information on future deals (even though they're legally required to do so).

It's classic regulatory capture. The Fed guys -- who literally work in the building with Goldman -- want the Goldman guys to like them.

There's a lot more in the report, leading to a point in which Segarra is basically told to not be so good at doing her examiner job, but to instead build more relationships. The Fed employee doing the scolding, Segarra's supervisor who used to have her job, points out that she's upset some people with her brusque language, her "sharper elbows" and the fact that she was "breaking eggs." Segarra points out that she's doing her job and, furthermore, doing a "good job" as well:

"I'm here to change the definition of what a good job is," Kim said. "There are two parts it: Actually producing the results, which I think you're very capable of producing the results. But also be mindful of enfolding people and defusing situations, making sure that people feel like they're heard and respected."

In other words, don't do your job quite so well, because you're pissing off people at Goldman Sachs. That eventually led to the fight over the conflict of interest policy. After investigating it for a while, having Goldman officials and Michael Silva directly admit that there was no real policy, suddenly Silva tells her she can't actually say that in the report she's writing up. This is because folks at Goldman got upset about it, pointing to a generally vague policy statement on conflicts of interests (which doesn't come close to actually being a policy), and insisted that they had a policy.

"You have to come off the view that Goldman doesn't have any kind of conflict-of- interest policy," are the first words Silva says to her. Fed officials didn't believe her conclusion — that Goldman lacked a policy — was "credible."

Segarra tells him she has been writing bank compliance policies for a living since she graduated from law school in 1998. She has asked Goldman for the bank's policies, and what they provided did not comply with Fed guidance.

"I'm going to lose this entire case," Silva says, "because of your fixation on whether they do or don't have a policy. Why can't we just say they have basic pieces of a policy but they have to dramatically improve it?"

Later in the conversation, Silva says that he "didn't get taken seriously" when he challenged higher-ups in the past over that shady banking deal, and thus Segarra should just give in to the higher-ups demands. A week later, she was fired.

There's also this story, which Lewis summarizes:

In meetings, Fed employees would defer to the Goldman people; if one of the Goldman people said something revealing or even alarming, the other Fed employees in the meeting would either ignore or downplay it. For instance, in one meeting a Goldman employee expressed the view that "once clients are wealthy enough certain consumer laws don't apply to them." After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement -- to which the regulator replied, "You didn't hear that."

In the actual This American Life episode, the story is even more damning. There were other regulators (not from the Fed) there as well, who all heard it too. And they were all talking about (something that was confirmed by others there) and the other Fed employee insisted that Goldman must have been joking and no one should pay attention to it.

The end result of all this: the banks run the show.

I actually didn't find the full report to be quite as damning as Lewis does. Some of the issues raised by Segarra do appear to be slightly overstated, and there do seem to be reasonable explanations for some of the things she found questionable. But it doesn't change the overall issue, which is that the banks effectively control the regulator, not through direct intimidation (or at least not in ways that are directly evident in this report), but because the Fed itself seems unwilling to ever actually rock the boat and make sure that Goldman is held to account.

Now, I'm among those who are concerned about situations involving over-regulation and government interference where it's not necessary. But we should also be concerned about companies that are simply too powerful, and are able to engage in activities that abuse market power to harm the public -- and to engage regulatory capture to rubber stamp them. This episode shows how that's apparently the norm on Wall Street.

from the huh? dept

We remain absolutely baffled by the FAA's bizarre rules about drones. As we've noted, the FAA has said that you can use drones for fun, but if it in any way involves profit, it's not allowed. So you can use a drone to take photographs from the sky for personal use, but if you're a real estate agent trying to do a flyover of a house you're trying to sell, that's illegal. And while some people still claim that drone use should be limited so they don't interfere with airplanes, that doesn't seem to (even remotely) be the concern here, otherwise the personal use of drones would be barred too.

But it's getting even more bizarre. Now, it seems that anyone who wants to use drones in anything close to an innovative way has to first go beg the FAA for permission. And the permission is sometimes given and sometimes withheld. Compare these two stories. The University of Michigan wanted to use drones to deliver the game ball before kickoff of a football game, but the FAA nixed the request. It's not at all clear why. This was for a sporting event, and it would just be for fun. It's hard to see how the use was "commercial" other than the fact that college football is big business. Meanwhile, compare that to the fact that the FAA is apparently granting permission to Hollywood to use drones to film things:

In May, seven aerial photo and video production companies asked for regulatory exemptions (known as a 333 exemption) that would allow the film and television industry to use drones with FAA approval. Those seven companies and the Motion Picture Association of America (MPAA), were asked by the FAA to develop the guidelines and safety procedures under which they planned to operate. The FAA reviewed those procedures and is expected to approve the drone-specific rules and standards that will enable Hollywood to be exempt from existing aviation regulations.

Of course, the report from Forbes notes, this actually took four years of back and forth with the FAA to get to this point.

We've talked for a while about the concept of permissionless innovation and why it's important to keep the velocity of innovation moving forward at a rapid pace. Adding in this layer of bizarre, arbitrary and ridiculously slow regulation, and you're slowing down that pace. And while some say "does that really matter" for something as silly as flying drones, as we've noted, it's entirely possible that drones can create some amazingly powerful societal shifts. But each bit of "permission" needed along the way slows down that process and limits our ability to innovate and to adapt and adjust and learn.

from the myths dept

One of the general rules that we try to follow here on Techdirt is to avoid anything that has to do with "partisan politics" or debates that involve "Democrats" v. "Republicans." Thankfully, many of the tech issues that we discuss don't fall neatly into one camp or the other -- issues around intellectual property, privacy, innovation and surveillance seem to have supporters and detractors on both sides of the traditional aisle. Sometimes that's because the issue is so "new" that it hasn't been twisted and distorted into a partisan fight yet. Sometimes (more frequently) it's because these issues aren't ones that get enough attention at all. Net neutrality was like that in the early days, a decade ago. It was a legitimate concern that was being raised about broadband providers potentially abusing market power. Somewhere around 2004 or 2005, however, something shifted in the debate, and it suddenly became a "partisan" issue with Democrats tending to be "for" net neutrality and Republicans tending to be against it. At this point, the debate became stupid. This often seems to happen with partisan issues. Once the "Parties" take over (and this is true of both parties), pretty much all debate on the relevant facts goes out the window, and it all becomes hyperbole and rhetoric. That has absolutely been the case with the net neutrality debate as well.

So, while we don't normally dive into any kind of partisan spin on things, because the rhetoric has become absolutely ridiculous on net neutrality, it seemed worth discussing why the Republican claims that reclassification under Title II is some sort of "government takeover of the internet" or "regulating the internet" are just wrong. And we'll go one step further and point out why Republicans should actually be standing right along side their Democratic colleagues in supporting reclassification. This shouldn't be a partisan issue at all, but a bipartisan effort to make sure that the internet remains free and open for true innovation and competition (the kind of thing that both parties should agree on).

We'll start by pointing to a fantastic article from James Heaney, a self-identified conservative, who goes into great detail explaining why free marketers should support reclassification of broadband access by the FCC. He covers a lot of ground that we've discussed before, but does so in a clear and concise manner that makes it easy to read. In short, he notes that free markets and competition are great for innovation -- and that while regulation can often get in the way of those things, so can monopoly power. Further, he highlights how internet infrastructure is effectively a natural monopoly (just like we discussed... a decade ago). And, thus, it makes sense to have very limited regulation to keep the natural monopoly from getting out of control and more importantly, to stop the natural monopoly from hindering all sorts of other innovation. Heaney's argument goes into a lot more detail, including a discussion of why the FCC was crazy wrong in its 2002 decision to declare cable a Title I "information service" rather than a Title II "telecommunications service," and why now is the time for the FCC to correct that mistake. Either way, he notes, the nature of broadband -- like highways or electricity -- makes it clear that it's a natural monopoly:

That’s because – guess what! – internet service is a market where natural monopolies prevail. Just like with the electric company, most of the cables and most of the network are already purchased and deployed. Adding a new customer often means literally just flipping a switch at HQ, or – at most – laying a few yards of cable to an existing network. In the end, the more the company sells, the less it costs them. Over time, the big companies beat the small ones on cost, gobble them up… then lobby the government to freeze out potential competitors, while jacking up costs and slashing service quality,.

If you have ever interacted with Comcast in any way, you already know about their “service” “quality” – the infinite wait times, the incompetent “help,” the constant upselling, the blatant lies (usually about credits they promise), the desperate measures. Since they are our local monopoly, I don’t hear too much about the other monopolists out there, but I understand Time-Warner isn’t any better. It is a fact that customers despise their ISPs on average:

What you may not realize is that they are overcharging you, too, like textbook monopolists.

From there, he points out that often the best way to deal with natural monopolies is through the threat of a government crackdown, rather than actual regulation. This was actually a position that we supported for a long time as well. I can't seem to find a reference to it now, but I'm pretty sure that this was the suggestion of Professor Ed Felten as well, noting that a sort of "Sword of Damocles" dangling above broadband providers' heads might be the best form of net neutrality as we learned more. However, as Heaney notes, we have learned more and that plan has now failed, thanks to the appeals court ruling in favor of Verizon (Heaney incorrectly says it's Comcast -- possibly confusing it with a different net neutrality lawsuit). And, thus, he notes, without the hovering threat, the playing field is now open for monopoly-power abuse -- which is the kind of thing that Republicans and conservatives should be against:

So now the delay-and-harass strategy has failed. The monopolists have a blank check from the law, and they are exploiting it with tremendous rapacity (as we’ve seen in the series of Netflix stickups, which picked up the moment net neutrality collapsed). Perhaps the next most attractive option is to pull a Reagan and just break up the major ISPs into smaller companies. Unfortunately, there is no obvious legal way to do that. The Bell breakup resulted from a lot of special circumstances, some plain-as-day antitrust violations, and an 8-year court battle. Moreover, breakup would probably not solve the problem: the wee ISPs would still have local monopolies in many areas, and economics 101 would force them to immediately begin reconsolidating into new national monopolies (as the Baby Bells are doing today). In the long run, the consolidation and price gouging of natural monopolies are probably inevitable. It’s a cold, heartless law of economics: the same laws that allow the government to increase revenues by cutting taxes will eventually compel certain telecom markets to become monopolies, no matter how many times we break them up.

Given that, he notes, the next best option is Title II. He notes, correctly, that the early days of the internet saw growth and investment in broadband thrive under Title II (contrary to claims to the contrary) and how the telcos today still beg to be classified under Title II for parts of their infrastructure:

To sum up, the only reason the Internet isn’t protected from monopolies today is because, in 2002, the FCC decided to experiment with not regulating the Internet. Almost immediately thereafter, the telecoms began fighting the core Internet principle of network neutrality, aiming to take control of the Internet for themselves and impose monopoly prices on consumers. All attempts to restrain them outside of Title II have failed. The Wall Street Journal regularly argues that the Internet has thrived because ISPs have never been regulated like phone companies. This is false, and the Journal should know better. Indeed, the years of the Web’s most explosive growth and development happened under the auspices of strict common carrier regulation, identical to those of phone companies. (Heck, even today, limited portions of Verizon’s high-speed fiber network, FiOS, fall under Title II!)

The fix to the growing monopoly problem is very, very easy, and several courts have pointed to it over the past several years: simply revisit the obviously nonsensical ruling of 2002. Overturn it, and (correctly) decide this time that Internet Service Providers are “telecommunications providers”. Instantly, every ISP in America would go back to common carrier status, and net neutrality regulation wouldn’t just become easy; in many ways, neutrality is baked into Title II. The FCC would gain many tools to reduce the risk of natural monopoly where it doesn’t exist, or its effects where it does. The market would be saved, the consumer freed from the tyranny of monopoly.

His full piece is much longer and well worth reading, but I have one further quibble with it, which gets back to the underlying claim about all of this that Title II is somehow "regulating the internet." It's not. It's never been about that at all. Quite the opposite, in fact. It's about choosing which form of regulation internet infrastructure will be ruled by. The anti-net neutrality crew like to make this mistake (and they make it often), trying to pretend that internet infrastructure is the internet. It's not. And internet infrastructure has always been heavily regulated, often out of necessity. In order to allow a cable company or a telco to install broadband infrastructure, local cities and towns often did special deals, handing over subsidies, rights of way, pole rights, tax breaks, franchise agreements and other such things to the broadband players. The idea that internet infrastructure has ever been "a free market" is laughable. No matter what kind of infrastructure was being installed, it's always relied on some sort of deal with government in exchange for access. As such, it's entirely sensible to argue that there should be certain requirements in exchange for such public support for their network, and that includes keeping the network itself free and open to use.

And that's really what net neutrality is all about. It's not about "regulating the internet," but making sure that the big broadband players don't "regulate" the internet themselves, by setting up toll booths and other limitations, allowing them to pick the winners and losers. It's about blocking monopolistic powers from putting in place systems to extract monopoly rents that harm the public and limit innovation and consumer surplus. Net neutrality frees the internet from such monopolistic regulations by putting common carrier rules at the infrastructure level to make sure that there's true competition and freedom at the service level. And that makes total sense, because you don't want competition of natural monopolies, you want to make sure natural monopolies don't block competition.

Given that Republicans like to claim that they're pro-innovation, pro-business and pro-competition, they should absolutely be in favor of net neutrality as well because it creates the environment where there will be real competition and innovation at the service level. The argument that they're using against it is to pretend that Title II regulates "the internet" when it really just changes the existing style of regulation for internet infrastructure, preventing a few monopolistic powers from squeezing monopoly rents from everyone else. Normally stopping monopolies is supposed to be a key tenant of conservative economics. It honestly seems like the only reason that isn't the case here is because big broadband lobbyists have carefully spun this tale (and heavily funded some campaigns) to pretend that what they're trying to stop is "regulation of the internet."

Powell said officers identified the driver as Hueso and said he was alone in the car. Hueso showed “objective signs and symptoms” of being under the influence of alcohol and was given a field sobriety test.

He was arrested shortly after, taken in without incident and booked into Sacramento County jail at 3:27 a.m, she said. Jail records show he was booked with a blood alcohol content of .08 or higher at 3:27 a.m. Powell said the CHP would not release the precise blood alcohol reading. He was released from jail late Friday morning.

Hueso has apologized for the drunk driving, but perhaps he should apologize for his vote... and for not calling an Uber to take him home (or wherever he was headed) that night...

from the speak-up-now dept

There were rumors yesterday of a few ridiculous and extreme attempts by some in Congress to attach some anti-net neutrality amendments to the big Financial Services and General Government Appropriations Act. And while the most ridiculous proposal failed to appear, instead, it does appear that Rep. Marsha Blackburn is pushing an amendment to block the FCC from preempting laws that ban municipal broadband. The big cable companies have fought municipal broadband for ages because they hate competition. Cable and telco lobbyists have succeeded in getting such laws passed in a number of cities and states, with some politicians directly admitting that the bills were written by those lobbyists. And while there have been some disasters in munibroadband efforts, there have also been some amazing successes, providing truly competitive broadband that also helped force competitors to up their game.

That's why we were happy to see FCC chair Tom Wheeler make it clear that he was willing to use the FCC's powers to preempt laws blocking competitive broadband. This would be a very good use of the FCC's power to encourage real competition and innovation. Blackburn's amendment is all about stopping that, and making sure that your broadband is as expensive as possible, with no real innovation or competition on the way. Blackburn, of course, is also the politician who constantly screams about how terrible it would be to "regulate the internet" when it comes to net neutrality, but seems to have no qualms at all "regulating the internet" when it comes to other things, like SOPA (she was one of its main supporters). She's also claimed that "fair use" and "transparency" are just buzz words and that we need much stricter intellectual property enforcement.

But when it comes to actually making sure you have a competitive broadband market? She's totally against that. You would think, given that she's from Tennessee, that she'd be aware of the massive success of muni fiber over in Chattanooga. It's not her district, but it's not too far away. Perhaps she should take a visit and see if the residents there would support her stomping out competition and fast broadband.

Blackburn's amendment is to be voted on today, so groups like EFF, Public Knowledge and Free Press are urging folks call Congress to oppose Blackburn's latest bad idea.

from the cher-dieu,-nous-avons-été-Columbia-Housed! dept

In 2004, France's bookstores took the company to court over its discounts and free shipping, arguing that the online retailer was killing off local businesses. Three years later, the court emerged with a ruling that declared Amazon would have to start charging for shipping or face a 1,000 euro per day fine until it did. Amazon chose the latter option, opting to allow aggrieved merchants (and press covering the legal battle) to provide it with some very low-cost press.

Since that strategy didn't pay off, French retailers began pushing for a law aimed at all online retailers -- but most specifically Amazon -- that would make it illegal to offer free shipping to French book purchasers. This was on top of an existing law (put into force in 1981) that forbade anything more than a 5% discount on new titles. This new law forces Amazon to charge for shipping or face being banned from selling in France completely, along with stripping away the 5% discount.

France's "anti-Amazon" law prohibiting free shipping and discounts has now gone into effect, and Amazon quickly announced that it had conformed -- technically. Though it no longer ships books for free, it only charges 0.01 euro, conforming to the letter if not the spirit of the law (French Prime members still receive free book shipping).

Enjoy your symbolic victory, French legislators. A whopping centime per shipment "containing books" (no matter how many items are in the cart) will no doubt restore the financial glory of local retailers, especially when unaffected items start flowing into France with both discounts and cheaper shipping.

That's the sort of "victory" that's often achieved by legislating "fairness." There are others ways local retailers could have handled this problem, but they chose the long, expensive and ultimately fruitless courtroom/legislation route and the end result is 1/100th of a Euro per shipment. And this won't be the end of it. Amazon is apparently eyeing an appeal with the EU Commission, which views the new law as anti-competitive.

from the darn-rules-folks dept

A new FOIA discovery via Todd Feathers at MuckRock has turned up some emails showing a rather cozy relationship between top Comcast execs and Justice Department antitrust officials. In fact, just days before Comcast announced its intent to acquire Time Warner Cable, Comcast Senior VP of Regulatory and Legislative Affairs, Kathryn Zachem, had invited Deputy Assistant Attorney General, Renata Hesse, to "attend a celebration of the opening ceremony" of the Sochi Olympics, care of Comcast NBC Universal. Hesse sent an email saying that she really wanted to attend but "the rules folks over here tell me I can't do this." Though, she still says that they need to get dinner sometime soon. When Zachem responds that she had hoped it would still be okay because "we have nothing formally before you all," Hesse notes "our ethics rules are very restrictive."

Two weeks later, Zachem was again emailing Hesse to give her "a heads up on an announcement we are making in the early AM." It was, of course, the proposed acquisition of Time Warner Cable. A couple days later, there's another email exchange between Zachem and Hesse, in which Hesse introduces Zachem to David Gelfand at the Justice Department who "will be working on this for the front office with me." She notes "If you don't know him, you will and I know you will like him. He's just terrific." Zachem replies: "Hello David - if Renata says I will like you then I already do!" Gelfand jokingly replies:

In the interest of full disclosure, Renata sent her nice email while still under the influence of my having just bought her a cup of coffee. But hopefully I can live up to the advance billing!

Just the kind of chummy, friendly relationship you want to see from the people tasked with determining whether or not your multi-billion merger should be allowed to go through. And, yes, I recognize that regulators and top execs in charge of regulatory affairs are going to have personal connections and relationships with each other. That happens. But given the situation and the timing, this certainly raises the usual questions of just how objective the DOJ's review of the merger will be.

from the because-that's-not-even-remotely-true dept

I'm not sure what it is about net neutrality that brings out absolutely insane arguments that make no sense, but it certainly seems to happen with annoying frequency. The latest is Rep. Darrell Issa taking a few words from a statement by leading net neutrality advocate, professor Tim Wu, and claiming that it means net neutrality could end porn online.

Issa has carved out a position for himself at times as a defender of the internet and innovation on the Republican side of the aisle. He was a key player in stopping SOPA, and has also been quite important in pushing back against USTR secrecy in questionable trade deals and in making sure you can actually rip your DVDs. He was also among those trying to dig into the ridiculous prosecution of Aaron Swartz. That said, he's also made some serious missteps when it comes to tech policy. He supported an Elsevier-backed bill that would have cut off open access policies. He's been a bit wishy-washy on NSA stuff as well, though more recently has generally sided more with protecting privacy.

Many of those positions have been ones that don't have a particularly partisan bent (sometimes going against the prevailing view in the party). But, when it comes to net neutrality, he's toeing the standard partisan line. As we've noted all too often, about a decade ago, net neutrality suddenly became a "partisan" issue with Republicans against it and Democrats for it -- and since then it's been almost impossible to have a real policy debate about it that doesn't immediately descend into partisan talking points that have little basis in reality. Unfortunately, it appears that rather than actually dig into the issues here, as he's done in the past on other issues, Issa chose to take the easy grandstanding way out on this one. Last week, the House Judiciary Committee held a hearing asking if antitrust law would be more effective in protecting consumers and innovation online. Now I've already gone on record in arguing that the FTC may be a good place to look to protect net neutrality, but less from the antitrust angle than the "actually delivering what you sold customers" angle.

Issa: Professor Wu. I really appreciate your being here. I think you've given us the appropriate characterization of the true reason for net neutrality. You said it was 'social media police, speech policy, political policy.' You used words including 'control.' All of that, you did voluntarily here, right?

Wu: *Silence* (I assume he nods)

Issa: So, what you're saying, in effect, is, if the FCC gets ahold of this, we can go back to the Leave it to Beaver times. Times in which two married adults had to be in twin beds in order to get passed the social norms of the day. Times in which, even today, Bill Maher, who I often disagree with, can't be on broadcast because the FCC won't let him on because he uses the F-bomb too often. Times in which complaints are being considered today, and in the last year, against Two and A Half Men, because they're too sexually explicit. This is the FCC's role. They're a regulatory policy entity that actually does limit free speech, carefully question moral norms and the like. Do you have any way to tell me that's not true after your opening statement?

Wu: What I'm trying to suggest...

Issa: Please answer the question. Then you can get to your suggestion.

Wu: I'm suggesting that if the antitrust agencies overtake the...

Issa: No, no. You were telling me the good reasons for the FCC to have this kind of control. And I have countered with, you're absolutely right. Everything you said about social policy, speech, political. These are things the FCC has controlled over the airwaves for my entire life.

From there he turns to a former FCC commissioner and asks a leading (and misleading) question about FCC regulations on speech.

So, here's the thing: Issa is correct in pointing out that the FCC has a mandate in regulating "indecency" over broadcast spectrum. Many people -- including us -- have been quite critical of the FCC's attempts to "fight indecency" on broadcast TV, and have been happy when the courts have curtailed its ability to do so. However, that issue has absolutely nothing whatsoever to do with net neutrality. The FCC has this (already questionable) mandate over regulating indecency solely on broadcast (not cable or satellite) TV under the theory that the spectrum used for broadcast TV is scarce and owned by the US government who then gave it out to the networks (for free) in exchange for promising to use it to broadcast good, wholesome content.

None of that says anything about what's happening on the internet, which is not broadcast TV in any way, shape or form. Even more ridiculous is that it's quite clear that if you actually read Tim Wu's opening statement, he's saying the exact opposite of what Issa implies he's saying. Issa simply cherry picked a few words, completely out of context, and did this grandstanding show of pretending Wu said the FCC would be regulating speech. Wu, instead, pointed out that the FCC has a role here in making sure the internet stays open for the purpose of keeping open the marketplace of ideas.

There is, in our times, an
intimate relationship between Internet policy, free speech and the political
process. At the risk of stating the obvious, the Internet now serves as an
incredibly important platform for both political and non-political speech of
every possible description. In this respect, it probably comes closer than any
other speech technology to creating Oliver Wendell Holmes’ vision of a
marketplace of ideas. The Internet has also served as the launching pad for
numerous political movements and campaigns, and has tended to provide a
place for outsider parties and candidates to challenge the establishment.

When we understand the Internet as a speech and political platform, it
is clear that protecting the open Internet – dealing with matters like
discrimination as between competing forms of content – has obvious
implications for both free speech and the political process. You might say
that to protect the open Internet is much the same thing as protecting the
United States as an open society.

So Wu is making the point that by not allowing discrimination and favoritism online, we better guarantee a marketplace of ideas and open and free communications online. And Issa took a few words out of that, and pretends that it means the FCC would suddenly, magically, get the power to not just regulate speech online, but to try to censor the internet to not just get rid of porn, but bring us back to the Leave it to Beaver days? Issa, later in the talk tries to argue that given that the FCC has the power to regulate speech on broadcast TV it will obviously, automatically, seek to expand that power to new realms. This, despite absolutely no evidence that the FCC has any interest in doing that. Yes, when (Republican) Kevin Martin was in charge of the FCC, he suddenly was much more interested in enforcing the indecency stuff, but no one has realistically sought to expand the FCC's charge over indecency beyond over the air broadcast TV, and there's nothing in the discussion of net neutrality even close to suggesting that anyone will move in that direction. Again, if anything, guaranteeing net neutrality would do the exact opposite in making it clear that no one can regulate what content has access and what does not.

Admittedly, Wu did not handle himself very well. Right after Issa tells him not to suggest something, to immediately repeat that phrase was a bad idea -- and later on he makes the cardinal sin in a Congressional hearing of trying to interrupt Issa and speak when no question was asked of him. I understand why he did it, but that's generally considered a huge faux pas in Congressional hearings. Issa then slaps him down for trampling on his "time" which is kind of amusing, since he was just bitching about how the government shouldn't get involved in stifling speech, but then actively seeks to not let Wu talk.

Anyway, Issa tries to drive home his suggestion that the FCC might try to ban porn online, with a massively convoluted question that is both wrong and misleading:

Issa: In my 14 years, the one thing that I have noticed is that we like to "harmonize" things. So, Commissioner Wright and Commissioner McDowell, do you have any question that if the FCC takes full net neutrality authority, if you will, that the FCC, by definition, will tend to want to harmonize other spectrum such as broadcast, and its limited cable role, with the internet. In other words, the rules of the road for broadcast, that have given us not having things on broadcast inevitably would be applied, at least in some part, to the internet. Maybe similarly to how we regulate cable to only go so far. So I'm just going to give you a simple question: You can't put what some people consider pornography on broadcast television, can you?

McDowell: No.

Issa: And it's extremely limited as to what can be on cable? It cannot be a free for all.

McDowell: It can't be obscene. It's a different constitutional standard.

Issa: Right. But, on the internet today, it is limited only to criminal acts? Is that correct? You can put anything you want on the internet, so long as it's not a crime. Is that correct?

McDowell: Correct.

Issa: And if it is a crime, then law enforcement regulates it?

McDowell: Correct.

Except, no, not correct. At least not the implication here. The FCC has the (yes, questionable) mandate that lets it fight against indecency on broadcast TV. The claims about its role concerning cable TV are quite limited to almost non-existent. When McDowell points out that things on cable can't be obscene, that's also the existing standard for the internet as well. That is, when Issa says it can't be "criminal" and that "law enforcement" will take care of criminal issues, that's the same thing as talking about "obscene" content on cable TV, which the FCC has no real mandate over. The Supreme Court has long ruled that obscenity isn't protected speech -- and whether or not you agree with that, that's the rule. And that applies equally on cable TV and the internet. Yes, there are a few specific parts of the law that specifically call out subscription TV for not being able to show obscene material, but it's still based on the basic laws around obscenity.

And, nothing in any of the net neutrality stuff has anything to do with any of that. At all. Which McDowell could have explained, and sort of hinted at with his "different constitutional standard," but it goes beyond that. Because there is nothing in the debate that has anything to do with the FCC trying to keep anything offline. In fact, throughout all of this, it's been abundantly clear that the focus is on trying to make sure that there are no restrictions on content, rather than adding restrictions. The problem is that people (led by the telcos) are deliberately trying to conflate regulating the infrastructure layer with the content layer, in a sad and desperate attempt to block these rules that would serve only to stop broadband companies from trying to set up extra toll booths online.

Also, note the ridiculousness of the (mis)leading line of questions. Issa appears to set up a question about the likelihood of the FCC expanding or "harmonizing" efforts to censor content, even asking that specific question but never letting anyone answer it, and then completing the very same question with a much more mild question about whether or not you can put porn on broadcast TV. It's a pretty standard political trick. You start out by asking the question you really want to imply, but never let anyone answer it. You follow up instead with an easy "yes/no" question, thereby implying to the public that the answer to the first question was also an easy "yes."

Issa then turns back to Wu, though again fails to let him talk:

Issa: Okay, Professor Wu, I'll give you the last word. Do you see any inconsistency with exactly that? Because you're talking about -- in your statement -- about speech policy, social policy, control. Isn't that part of the concern that the American people should have, that much of what they see on the internet could be regulated out of existence?

Wu: Net neutrality protects the internet as a platform for an incredible diversity of speech. We've had net neutrality rules, de facto, for the past 20 years. We've had an incredible outpouring of speech from all across the political spectrum. And I'm suggesting that if we maintain...

Issa: Professor! Professor, your own words indict you.

Issa then moves on to a different question about defining the relevant market in antitrust for competition, leading Rep. Hank Johnson to jump in and ask if he could let Tim Wu actually answer the original question. Issa claims that Wu went off topic and thus the time goes back to being Issa's. He also suggests that Wu failed to be "succinct" in answering his questions, though as far as I can tell, at no point does Wu even get 3 full sentences in any where without Issa interrupting or talking over him.

Look, I'm just as concerned about the FCC overregulating speech with things around "indecency" on broadcast channels. And I have my concerns about the Supreme Court's rulings on "obscenity" and how regulating against it is not a First Amendment issue. But none of that has anything to do with net neutrality. And nothing in this debate even remotely touches on the question of the FCC suddenly taking porn off the internet or making it like Leave it to Beaver. As Issa's colleague, Rep. Jared Polis noted a few years back in a hearing on SOPA (at which Issa was also present,) the internet is for porn (placing the lyrics to the classic Avenue Q in the Congressional record). And that's not going to change any time soon.

In fact, it could reasonably be argued that without more explicit recognition for net neutrality, the big broadband providers are more likely to try to cordon off internet porn into "premium" parts of the internet. Thus, if Issa is really fighting for more porn on the internet, he might want to listen more closely to what Wu is actually saying, rather than trotting out a highly misleading attack on Wu.

Today, WikiLeaks released the secret draft text for the Trade in Services Agreement (TISA) Financial Services Annex, which covers 50 countries and 68.2%1 of world trade in services. The US and the EU are the main proponents of the agreement, and the authors of most joint changes, which also covers cross-border data flow. In a significant anti-transparency manoeuvre by the parties, the draft has been classified to keep it secret not just during the negotiations but for five years after the TISA enters into force.

Despite the failures in financial regulation evident during the 2007-2008 Global Financial Crisis and calls for improvement of relevant regulatory structures, proponents of TISA aim to further deregulate global financial services markets. The draft Financial Services Annex sets rules which would assist the expansion of financial multi-nationals -- mainly headquartered in New York, London, Paris and Frankfurt -- into other nations by preventing regulatory barriers. The leaked draft also shows that the US is particularly keen on boosting cross-border data flow, which would allow uninhibited exchange of personal and financial data.

The secrecy of negotiating documents exceeds even the Trans-Pacific Partnership Agreement (TPPA) and runs counter to moves in the WTO towards greater openness.

The TISA is being promoted by the same governments that installed the failed model of financial (de)regulation in the WTO and which has been blamed for helping to fuel the Global Financial Crisis (GFC).

The same states shut down moves by other WTO Members to critically debate these rules following the GFC with a view to reform.

They want to expand and deepen the existing regime through TISA, bypassing the stalled Doha round at the WTO and creating a new template for future free trade agreements and ultimately for the WTO.

TISA is designed for and in close consultation with the global finance industry, whose greed and recklessness has been blamed for successive crises and who continue to capture rulemaking in global institutions.

A sample of provisions from this leaked text show that governments signing on to TISA will: be expected to lock in and extend their current levels of financial deregulation and liberalisation; lose the right to require data to be held onshore; face pressure to authorise potentially toxic insurance products; and risk a legal challenge if they adopt measures to prevent or respond to another crisis.

One of the most worrying features of the TISA proposals is the following:

The crucial provision is Art X.4, which would apply a standstill to a country's existing financial measures that are inconsistent with the rules. That means governments must bind their existing levels of liberalization for foreign direct investment on financial services, cross-border provision of financial services and transfers of personnel. The current rules will be the most restrictive of financial services that a government would be allowed to use. They would be encouraged to bind in new liberalization beyond their status quo.

This is the familiar "ratchet" that we see in copyright law. Here, it means that restrictions on the financial industry can only be reduced, never increased, no matter how badly they screw up the global economy (again). Doubtless proponents of TISA will claim that signatories to the agreement will -- of course -- retain their sovereignty and ability to take "prudential measures" for the good of their people, just as they have said regarding corporate sovereignty in TPP and TAFTA/TTIP. But as Kelsey points, part of the leaked document shows that is simply not true:

the article is comprised of two sentences that contradict each other. If a government takes a prudential measure that is inconsistent with the agreement, it cannot do so as a means to avoid its commitments under the agreement! So any prudential measures must be consistent with the other provisions in the agreement.

Put another way, governments will have total freedom to legislate in any way they please provided it is compatible with TISA -- which means that it must be in favor of the financial industry, not the public. Another section that is written entirely for the benefit of the financial companies, not the public, concerns the protection of personal data:

nothing shall be construed to require a Party to disclose information regarding the affairs and accounts of individual consumers. That means TISA does not affect states' ability to require disclosure of information, presumably to the government, about individuals. It is not concerned with protecting personal privacy or preventing those who hold the personal data from abusing it for commercial or political purposes.

Given the sensitivity of data protection issues in Europe, this is likely to become a major stumbling block to the ratification of TISA by the European Parliament, assuming it gets that far. Indeed, it's significant that one of the leading German newspapers, the Süddeutsche Zeitung, used the headline "U.S. grab account data of European citizens" when reporting on the leak (original in German.) That underlines the fact that alongside the new information that the WikiLeaks document reveals about the secret negotiations, another important aspect of the leak is that the mainstream media in Europe are finally aware of TISA, and are likely now to start exploring critically its effect on key areas like privacy and public services.